Market Matters Report / The Hickman Report 28th December 2013

By Market Matters 28 December 13

The Hickman Report 28th December 2013

Classic low volume, explosive Christmas rally

Market Matters Summary for 28th December 2013

  • US Treasury Yields hit 2-year highs last night with markets still talking rate cuts in Australia = $A remaining vulnerable.
  • The relative weakness of the Australian economy is reflected by the $A which looks destined for US81-82c area.
  • Subsequently the stocks I am looking to buy into 2014 still have a clear bias for offshore earnings.
  • Overall I remain bullish for 2014, especially the US, but do still believe that some decent corrections are close at hand.
  • Subsequently, investors should have a shopping list of stocks ready to buy if the ASX200 falls well under 5,000.
  • I will be watching ANN, BOQ, CWN, CSL, FOX, FMG, QBE, REA, RMD and SEK to buy at lower levels as outlined beneath – virtually all of them benefit from offshore earnings.
  • Gold stocks are showing excellent signs of a bottom; I am comfortable topping up positions into any down days.

 

The Overall Market

  • The last 5 days saw a classic low volume, explosive Christmas rally of 270 points (5.3%).
  • I felt a week ago that this year may be different, but the Fund Managers got their way and stops reiterated their importance.
  • The catalyst was clearly the FOMC’s announcement of a gradual commencement to taper stimulus.
  • The US market's forecasted 8% correction has clearly not yet eventuated, but I remain comfortable holding 40% in cash.
  • I stress if we get this retracement, it’s an excellent buying opportunity for 2014 and not time to panic sell.
  • My work on correlations with clearer indices (e.g. NZ50 on chart 8) has the 4,800 level for the ASX200 flashing in big lights.

What Mattered Last Week

Last week was strong for equities, albeit on very low Christmas volume with the ASX200, closing up 61 points and the Dow +257 points. The same 3 points from last week’s report held firm:

  1. Over $8.6Bn of dividends being returned to investors have hit bank accounts, or used for DRP.
  2. Fund managers want good returns, so why sell in the last few days before January 1st.
  3. Well over 80% of the time, the ASX200 has risen from now into the first week of January.

 

The theme last week was as simply no selling creating upward momentum.

  • Gold stocks again proved very interesting, holding support after having the kitchen sink thrown at them.

 

What Matters This Week

 The ASX200 is again, likely to be dictated to by low volumes as most traders / brokers will be on holiday.

  • After clearly witnessing a strong “Christmas rally,” we need to consult the statistics of what usually comes next: 
  1. The Santa Claus rally ends on January 3rd.
  2. February is usually a small negative month for the S&P since 1950.

  • I will continue to watch gold stocks carefully as I am bullish at these levels and they are generating some buy signals.

Trading for the coming Week

  • I will am overall bullish for 2014, but a decent correction is overdue in a number of markets.
  • Short term traders can sell calls into fresh December highs as a retracement to the recent 359 rally is likely close at hand.
  • Markets that are evolving relatively clearly, target the following retracements e.g. NASDAQ 225 points & NZ-10%.
  • Remember, it’s easy to identify a good company e.g. CBA, but not a good level to enter!
  • The gold sector has had an awful year; gold stocks look as unloved as the retail sector was in June 2012 prior to a 65% rally. I am buying slowly now while everybody has been selling, looking for a strong corrective rally minimum.
  • I am recommending buying long dated NCM calls for trading / option investors.
  • Investors should maintain a set plan for a correction if it unfolds. I have increased cash holdings and will simply buy my preferred equities into weakness. I have again refined these below:
  1. ANN - $19
  2. CWN -$15 
  3. FOX - $31
  4. BOQ - $11
  5. FMG - $5
  6. REA - $35
  7. RMD - $4.50
  8. CSL - $60
  9. QBE - $10.75
  10. SEK - $11.50


N.B. I am remaining patient on entry price levels as a lot of people are choosing these stocks with offshore earnings exposure for 2014, hence retracements can feed on themselves.

  • Higher risk plays are NCM - $7.50 and RRL - $3.


Market Matters’ ViewThe below views are illustrated in detail by the charts beneath.Bullish: ANN(m), BOQ (m), CBA (m), CSL (m), CWN (m), Dow (m), FOX (m), FMG (w), FTSE (w), IBEX (m), NASDAQ (m), NCM (w), Nikkei (m), REA (m), SEK (m), S&P (m), SUN (m), & WOW (m).Neutral: AMP (w), ASX200 (d), Australian Banks (w), BEN (m), BHP (d) & (w), Hang Seng (w), Gold (m), NAB (w), NCM (m), QBE (m), RIO (w), STOXX (w) & WES (w).Bearish: China (m), Copper (m), NZ (w), Retail Index (w), WBC (w) & WPL (m).

  • Time Frames - (d) = daily, (w) = weekly and (m) = monthly.

e.g. A (d) implies I am bullish on a daily basis but a (m) would mean I am bearish on a monthly / longer term basis. 


Australian ASX200

I remain bullish on a monthly basis, but neutral on a daily basis. The path of least resistance was clearly up over the Christmas period as is so often is the case, what comes next is now tricky. By mid-January a clearer picture should emerge.
I remain wary of the potential 8% correction for overseas markets and the weekly “rising wedge triple top” formation on chart 3 and the close correlation with clearly negative NZ market.












 

American Equities

The American indices look vulnerable to an 8% correction; the Dow is reached my target areas. However, weakness in the US should be aggressively bought as the monthly set ups and growing economies are overall bullish.
The NASDAQ is the clearest index and the most bullish, I am an aggressive buyer of any 200+ point correction.









European Indices

The European indices now look net bullish for 2014 with the FTSE in a classic 3-4 consolidation prior to an assault on the 7000 level.







Asian Indices

Asian indices remain net positive, but messy short term. The Nikkei continues to trade out of control, under the weight of stimulus and intervention.





Australian Stocks

Buying sustainable yield and selling XJO calls has been a logical strategy over recent years, however, the risk of rising bond yields (last night was two-year highs) has resulted in me now recommending a more balanced portfolio – my view is that the next major move in rates is up. Overall, the major stocks in the ASX200 remain clearly positive, however, I have reduced exposure into recent strength positioning myself for a potential pullback to buy back in – a number of stocks were close prior to Christmas rally. At this stage I am going to apply some patience rather than jumping in at current levels.

I am a little concerned that everybody is calling stocks with exposure to overseas earnings to outperform…..how crowded is this trade? Hence being fussy on price makes a lot of sense.

Stock picking remains at a premium as is demonstrated in 2013 with different stocks moving in different directions e.g. FOX +78% and SEK +89% but WOR -28% and NCM -64%.






























 

Australian Dollar

 

The $A is looking very heavy, the recent bounce was a little greater than anticipated breaking 97c, renewed weakness now looks likely with an ultimate target of 81-82c.




Commodities

The gold chart looks bullish longer term, targeting fresh recent highs likely over $2,000 suggesting inflation - confirmation requires a close over 1,480. On a monthly basis, gold remains bearish targeting new lows for 2013/14 under 1,180. Conversely, a bounce towards the 1,400 area would not surprise. Either way, I am targeting a rally to $1,400 in 2014.

The amount of money tied up in gold ETF’s that did not exist pre 2004 remains a negative. However, having recently visited China, the only two investments that interest locals are property and gold…not reflected by the price yet.

Copper remains negative on a longer term basis, a very similar chart pattern to Newcrest Mining and we all saw what happened there.




 

Please note this is my personal TECHNICAL opinion of markets and "General Advice" taking no account of individual’s circumstances.

Have a great week,

 

Shawn Hickman



 

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